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A Conversation with “House of Cards” Author William D. Cohan

Author William D. Cohan, our neighbor in Columbia County, was an investment banker for 17 years before he left Wall Street and wrote his first best-seller, The Last Tycoons. On Saturday evening, March 28, he will be at the Hammertown Barn in Pine Plains to talk about his latest book, House of Cards: A Tale of Hubris and Wretched Excess on Wall Street, a moment-by-moment insider’s account of the fall of Bear Stearns and Lehman Brothers, exactly one year ago. As a preview, Rural Intelligence offers up an exclusive Q&A with the fast-thinking author.

RI: When did you decide to write a book about the fall of Bear Stearns and Lehman Brothers, and how did you get it out so fast? There is an immediacy to the reporting in House of Cards that’s very hard to capture after the fact; it suggests you really were a fly on the wall while it was all happening.

WDC: I started the book literally the weekend Bear Stearns was sold to JPMorganChase. I had been in the middle of another book when my editor, Bill Thomas, at Doubleday, thought it might be worth changing gears to focus on the unfolding financial crisis. For the next eight months, I worked assiduously—did all the research, interviewed some 125 people, and wrote the book—and met the December 1 deadline. The book came out on March 10. Last fall, I remember reading a profile of Tom Friedman in the New Yorker where he talked about coming up with the idea for the World is Flat and then deciding he would do what he had to do to get the book done and published before anyone else came up with a similar idea. There were at least two other books about what happened at Bear Stearns and why in the works within weeks of my getting signed up and I decided, if I could do it, I wanted to be the first book out without sacrificing any—I hope— quality.

RI: Your background is in finance, yet you walked away from Wall Street to become a writer. You’ve done very well with this book and your previous book, The Last Tycoons. But talk about a high-risk gamble. Why?

WDC: It was actually a fairly simple calculus. I was fired from my job as a senior Managing Director at JPMorganChase in January 2004. I was at the prime of my career and was just summarily lopped off in a downsizing. I had been an investigative reporter before I went to Wall Street and I decided that I had had enough of Wall Street and Wall Street had had enough of me. I wanted to write a book about the incredible culture and characters at Lazard, especially since the previous book about the firm was 25 years old and had been written by an outsider. So much had changed at the firm and it was so mysterious to many people that I just couldn’t wait to tell the story. I wrote a proposal, got an agent and sold the book in an auction to Doubleday. Two years later I was done. The book was a New York Times bestseller and the winner of the 2007 Financial Times/Goldman Sachs business book of the year. I could not have imagined a better start to a second career, which I embarked on out of desperation more than anything else.

RI: Where do you stand on the argument that the outsize salaries of the financial services industry are essential “to get and retain the best people.” Was Jimmy Cayne “the best people”? Your sources say he “barely understood” the exotic, mortgage-backed instruments his company Bear Stearns was creating and selling. (And isn’t “barely understood” a euphemism for “was utterly clueless,” as Robert Rubin and Alan Greenspan now admit to being about derivatives?) What about Warren Spector, the brilliant creator of some of those (as it turns out) disastrous instruments? Was he a “best people”? Your book is rife with characters who pull on their bespoke pants one leg at a time, at most. Rather than the much-heralded “incentive,” don’t grandiose salaries just nurture hubris and attract personalities prone to morbid competitiveness?

WDC: As Charles de Gaulle famously said, “The graveyards are full of indispensable men.” The truth is that the compensation and incentive system on Wall Street has been badly broken for a generation since Wall Street firms converted from private partnerships – with shared liabilities and shared profits for the partners – to public companies, where bankers and traders were rewarded lavishly for taking short-term risks with their shareholders’ money. If the bets they took paid off they got paid millions and if the bets they paid did not pay off but generated short-term revenues, they also got paid millions and any liabilities related to those revenues were the burden of the shareholders. There is no doubt the executive committee at Bear Stearns – five men, including both Cayne and Spector – got paid way too much for what they did. In 2007, they split around $150 million among themselves for creating the house of cards that collapsed a year later. There has been no mention of anyone returning that money. The culture on Wall Street of alpha males – mostly – fighting over vast sums of money and then complaining when someone’s bonus is “only” two million dollars is disgusting, grotesque and immoral.

RI: Sorry to harp on this, but don’t you think the outsize starting salaries also highjack some of our best young people on their way to pursuing what might well have turned out to be more satisfying and fruitful (for themselves and society) careers?

WDC: One of the best things that I predict will come out of this crisis will be a sea-change among our best and brightest who will see quickly that there is much more to life than heading to Wall Street to push paper around, in the hope of making millions of dollars before they are 30. That is one of the enduring myths of Wall Street that has been rightly shattered by this current financial calamity that was caused in large part by the greedy behavior of many people on Wall Street.

RI: What do you think of the Obama administration’s bank-rescue plan? Do you think it will restore trust? Do you think it should? Or is the Street as much a casino as ever?

WDC: Obviously the Obama administration was dealt a very bad hand here and, I think, is playing it the best way it can. The only way to get the “toxic assets” off the books of the foolish banks is to find investors who want to buy them at prices the banks want to sell them at. By providing attractive financing to buyers of these assets the last impediment to trading them is removed and hopefully confidence in the market will be restored. I think Secretary Geithner deserves high marks for coming up with a well-conceived proposal that has the potential to help restore confidence to the markets. Only time will tell of course but the tenor of things seems to be improving in the capital markets, which is the first step to an overall recovery.

RI: Wall Street is, on the one hand, the last of the great macho strongholds, and, on the other, so emotional (“Stocks are down of fears of….” Fill in the Blank). Don’t you think if women were running that show, they’d be dismissed with a wave of the hand as a bunch of hysterics?

WDC: No actually, I am of the view that if more women were at the helm of Wall Street firms – there are exactly zero women at the helm at the moment that I know of with the exception of maybe a tiny boutique or two – that this kind of greedy, alpha-male behavior that created this whole dastardly problem could have been avoided. Now, this is probably wishful thinking, along the lines of conventional wisdom that if more women were in charge of governments there would be fewer wars but I believe it nonetheless. And I would welcome what remains of Wall Street to test the thesis.

House of Cards: A Tale of Hubris and Wretched Excess on Wall Street
A conversation and book signing with best-selling author and neighbor William D. Cohan
Saturday, March 28, 6 - 7:30 p.m.Hammertown Barn
3201 Route 199, Pine Plains; 518.398.7075